Irish Water is being told by the Government to dramatically cut costs and reduce the number of staff transferred over from local authorities.
The coalition is giving the utility company the go ahead to bring in a voluntary redundancy scheme to reduce its 4,500 workers.
The new board of Irish Water's parent company, Ervia, will be told to come up with a plan to reduce costs by €85m a year by 2020.
"There will no political constraints on whatever cost reduction plan the Ervia Board come up with, as long as it delivers on the job of fixing the network. If a voluntary redundancy scheme is needed for excess local authority workers, then the Government is willing to fund it," a Government source said.
The first job given by the Government to the new board of Ervia will be to set out a plan to slash operating costs after 2016. The plan is supposed to take advantage of the ability to cut duplication and waste by moving water services from 34 local authorities to a single company.
"The Government decision this week mandated the board to develop and publish a cost reduction plan early in the New Year.
"Setting our a credible plan for cutting costs is essential for convincing customers that their contributions are being used to improve the service and fix the broken infrastructure," a source said.
Irish Water is regarded as having inherited a high cost service from the 34 local authorities, which employ 4,500 workers in water services. Costs per customer are twice the British average, where utilities rather than local authorities deliver water services.
The Commission for Energy Regulation has already cut the allowable operating costs for Irish Water by 8pc by the end of 2016, saving over €100m over that period
But it is understood that the costs of running existing water services are expected to fall from €645m this year to €560m in 2020 - a drop of 13pc.
The Government is understood to now be making it clear to the new Ervia Board it wants Irish Water to go much further after 2016. The Coalition will tell Ervia to set out how it intends to meet best international practice in efficiency and cost reduction, including through measures such as:
l steadily reducing staff numbers;
l reduced bills for energy and chemicals;
l better management of suppliers and contractors;
l developing shared services;
l automating the operation of smaller facilities.
Meanwhile, Taoiseach Enda Kenny also welcomed Fine Gael TD Noel Coonan's decision to withdraw controversial remarks in which he compared some anti-water charge protesters to Islamic State (ISIS) militants.
The Tipperary North TD admitted, in a Newstalk interview, he went "possibly overboard".